| Although many properties that are currently in | | | | with the lender's acceleration of the loan, though, it is |
| foreclosure have little equity or are actually | | | | important that homeowners list the property for sale |
| upside-down (the homeowners owe more on the loan | | | | immediately and attempt to find a buyer as quickly as |
| than the home is worth), a significant number of | | | | possible. Starting with a low price is sometimes better |
| homeowners have a large equity position in their | | | | than starting high, as the acceleration of fees will |
| houses. But when the bank forecloses and attempts | | | | eventually make it necessary for the homeowners to |
| to bring the property to a sheriff sale, foreclosure | | | | raise the price, just to be able to pay off the loan and |
| victims often find out two of the most troubling truths | | | | walk away with nothing. |
| about the foreclosure process. Banks are allowed to | | | | Finally, if the homeowners are unable to use their |
| eat up the equity in the property throughout the | | | | equity to qualify for a loan to stop foreclosure or sell |
| process, and properties often sell at the trustee sale | | | | the house, there is little chance they will get any |
| for far less than the homeowners expect. | | | | proceeds from the sheriff sale. By this point, the |
| In general, when a homeowner has a large amount of | | | | mortgage company will have added in as many fees |
| equity in the property, they have more options to stop | | | | and costs as they legally can, so it is unlikely the |
| foreclosure than if they did not have the equity. | | | | property will be auctioned for an amount that will pay |
| Qualifying for a foreclosure loan is often much easier if | | | | off the loan in full. In addition, the lender itself is usually |
| the property has more than 25-30% equity. Although | | | | the only bidder at the sale, and their maximum bid is |
| these loans can be quite expensive, they allow for a | | | | often less than what is owed, or exactly what is |
| short-term solution whereby the homeowners will pay | | | | owed, which leaves the homeowners with nothing. |
| off the previous mortgage, start paying a new loan | | | | Even worse, if the house sells for less than what is |
| on-time and save their home. Another option that is | | | | owed, there is the possibility of being sued after the |
| enhanced with a large equity position is selling the | | | | foreclosure for a deficiency judgment (although this |
| property outright. In this case, the foreclosure victims | | | | rarely happens in reality). |
| can lower the price of their home down to the | | | | In the rare instance when a bidder does offer more |
| minimum, enticing buyers who are looking for a deal. | | | | than what is owed on the loan, though, then the |
| Although the sellers may walk away with little or no | | | | homeowners will receive the proceeds from the sale. |
| proceeds from the sale, they will have paid the loan in | | | | If there is any money left after property taxes are |
| full and avoided any tax consequences from a short | | | | paid, the first mortgage is paid in full, and any other liens |
| sale. | | | | (second mortgages, civil judgments, etc.) are cleared |
| When the property has significant equity and the | | | | off, the former foreclosure victims can claim their |
| homeowners are unable to work out a solution to | | | | proceeds. Very often, the county courthouse will not |
| avoid foreclosure, though, there are three | | | | inform the homeowners that they are due any money, |
| considerations that must be taken into account. First, | | | | so it is up to the foreclosure victims themselves to |
| as soon as the loan goes into foreclosure, the | | | | keep track of the outcome of the sheriff sale. Even a |
| mortgage company will begin accelerating late fees, | | | | few thousand dollars can help after foreclosure, either |
| interest, court costs, and attorney costs, as well as | | | | in terms of finding a new place to rent or beginning an |
| any other miscellaneous charges. This quickly begins to | | | | emergency fund and savings plan. |
| eat away at any equity the homeowners may have | | | | In the end, the bank does not directly have any rights |
| had, and the longer the house is in foreclosure, the | | | | to the equity in a property that is being foreclosed. |
| higher these fees can go. Homeowners who are | | | | However, they will do as much as legally possible in |
| unable to put together a plan to prevent foreclosure | | | | order to eat away at the equity, in order that they will |
| quickly may find that they are locked into the home, | | | | be able to claim the proceeds from the sheriff sale. If |
| because they owe so much that there are no options | | | | homeowners want the equity in the house to remain |
| left. | | | | theirs, they need to come up with a solution to the |
| The second consideration relates to the property being | | | | foreclosure as quickly as possible, and utilize the |
| sold before sheriff sale. Once the house is sold, any | | | | resources available to them while they still have time. |
| proceeds of the sale over and above that necessary | | | | Once the sheriff sale comes closer and the payoff |
| to pay off the mortgage and associated closing costs | | | | creeps higher and higher, foreclosure victims will often |
| will go to the sellers. In this case, the equity that they | | | | run out of options to avoid foreclosure at exactly the |
| have left is paid to them through the sale. Combined | | | | time they run out of time to save their homes. |